Bitcoin Investment Guides

Bitcoin Regulation by State (Updated 2017)

Bitcoin

Bitcoin has changed the world. Prior to its invention, wealth was largely dependent on the economic health of a nation or the backing of physical assets. With bitcoin, a wealth can be expressed and transferred digitally.

All the same, the United States has struggled with the question of the legality of bitcoin. Politician Ron Paul highlighted the controversy of the government legislating a decentralized currency when he said:

“I understand the political ramifications of [bitcoin], and I think that government should stay out of them and they should be perfectly legal.” 

Not every legislator agrees with that assessment, however. Investors will do well to understand bitcoin legality and the state of bitcoin regulation in the United States in order to stay in compliance, to prevent forfeiture of their investment, and to avoid costly legal fees and penalties.

United States Bitcoin Regulations

On a national level, the Federal Reserve and the Internal Revenue Service have taken the following positions:

  • Bitcoin – and all altcoins, for that matter – are not currency, but a taxable commodity akin to stocks. While individuals and businesses are free to use any private currency they wish to conduct business, bitcoin and altcoins are not recognized as legal tender.
  • Similar to property, bitcoin earned for services rendered are taxed as income.
  • Bitcoin paid for services rendered or to independent contractors must be reported on IRS Form 1099, with self-employment tax possibly being applicable.
  • Finally, capital gain on altcoins is taxable, as gains would be in stocks and bonds.

The government has taken a cautious position toward bitcoin money transmitters. Despite court decisions stating that bitcoin can be used as money, the Security and Exchange Commission has issued investor alerts to warn against bitcoin fraudulent investment schemes. The U.S. Department of Treasury’s Financial Crimes Enforcement Network has also issued guidelines instructing money transmitters to enforce Anti-Money Laundering (AML) and Know Your Client (KYC) measures.

State-by-State Regulations

Most states have yet to consider legislation on bitcoin. However, for the states that have imposed legislation, here’s a rundown of the current regulations by state.

State
Bitcoin Friendly? Current or Potential Regulation
AL No opinion
No ruling
AK No opinion
No ruling
AZ No opinion
No ruling
AR No opinion
No ruling
CA Murky Learning from New York’s BitLicense example, California is seeking to impose a bitcoin-focused business license that would require any business seeking to sell or transmit fiat currency by bitcoin to apply for a license and pay a licensure fee. This rule, however, has yet to be enacted.
CO No opinion
No ruling
CT Hostile Connecticut prohibits the selling and storing of bitcoin for others without a license. Connecticut also requires that licensees must have a surety bond in an amount set by the banking commissioner on a case-by-case basis. This bond is based on the projected profitability of the licensee.
DE No opinion
No ruling
FL Murky Florida is in the process of drafting new regulations on altcoins. Indications suggest that Florida is seeking to take a tightened position on altcoin regulation.
GA Hostile Georgia prohibits the selling and storing of bitcoin for others without a license. Furthermore, the Department of Banking and Finance is authorized to enact further rules and regulations for persons involved in money transmissions that use the digital currency, opening the door to possible additional regulation in the future.
HI Hostile Hawaii has taken an unofficial position of recognizing bitcoin transactions as money transmission, making a money transmitter’s license necessary. Hawaii also has taken the highly unusual step of making bitcoin officially illegal as tender in the state.
ID No opinion
No ruling
IL No opinion Illinois is currently researching bitcoin regulation.
IN No opinion
No ruling
IA No opinion
No ruling
KS Friendly Kansas has issued memorandums indicating that no money transmitter’s license will be needed to sell altcoins in the state.
KY No opinion
No ruling
LA No opinion
No ruling
ME No opinion
No ruling
MD No opinion
No ruling
MA No opinion
No ruling
MI No opinion
No ruling
MN No opinion
No ruling
MS No opinion
No ruling
MO No opinion
No ruling
MT Friendly Montana has no money transmission laws. Therefore, there are no bitcoin regulations in place, nor any indication that bitcoin regulations will be imposed in the future.
NE No opinion
No ruling
NV No opinion
No ruling
NH Friendly New Hampshire recently passed
legislation that exempts persons using virtual currency from registering as money transmitters, thereby essentially protecting bitcoin from regulation in the state.
NJ No opinion
No ruling
NM Hostile New Mexico not only requires a money transmitter’s license to transmit money via digital currency, but to deal with digital currencies in any way.
NY Hostile New York requires businesses that deal with any form of digital currency to seek a license from the state’s Department of Financial Services and pay an application fee. Additionally, the amount of the surety bond required is set on a case-by-case basis. This law has been highly controversial. This is seen, however, as better than requiring businesses to have a full money transmitter’s license. This law was the first altcoin legislation to be imposed by the states.
NC Murky North Carolina sellers and peer-to-peer traders are allowed to operate in-state as long as they are federally registered with the Financial Crimes Enforcement Network. The state requires surety bonds on money transmitters of at least $150,000, not to exceed $250,000.
ND No opinion
No ruling
OH No opinion
No ruling
OK No opinion
No ruling
OR No opinion
No ruling
PA Murky Pennsylvania qualifies virtual currencies as having monetary value. As such, sellers are required to have a money transmitter’s license and a qualifying surety bond.
RI No opinion
No ruling
SC Murky South Carolina introduced new money transmitter laws in June 2017, potentially affecting altcoin companies. To date, however, there have been no specific challenges to altcoins in the state.
SD No opinion
No ruling
TN Friendly Tennessee has issued memorandums indicating that no money transmitter’s license will be needed to sell altcoins in the state.
TX Friendly Texas has issued memorandums indicating that no money transmitter’s license will be needed to sell altcoins in the state. Taking this stand a step further, the state does not require bitcoin companies based in Texas to have a money transmitter’s license when running a custodial exchange for in-state customers.
UT No opinion Utah has shown indications of considering restrictions on bitcoin transactions.
VT No opinion
No ruling
VA No opinion
No ruling
WA Hostile Washington State includes digital money in its money transmission definition, under the Uniform Money Services Act. This means that altcoin businesses may be required to obtain a money transmitter’s license in the future.
WV No opinion
No ruling
WI Murky Wisconsin requires companies dealing in virtual currencies to sign an agreement that they will not use virtual currencies to transmit fiat currency. The state also refuses to offer money transmitter’s licenses to companies that it suspects may violate the money transmission rule.
WY No opinion
No ruling

As bitcoin and altcoins become more accepted, regulations will become more defined. However, some form of bitcoin regulation is likely here to stay. Compared to most nations, the U.S. is bitcoin-friendly. Forbearance and due diligence are needed, though, in order to protect your investments and to stay in compliance.

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